Will the economy really recover in 2011?

Read an interesting article by Dan Dorfman about why a sustained recovery will not take place in 2011. The economy is a mind-boggling animal to predict, but intuitively I feel this is correct. A simple look at American history is enough to help me reach this conclusion.

Throughout American history, the economy has rarely recovered from a financial crisis in less than 4 years, and sometimes not for 6 years or more. Intuitively, by this logic, we would not see a strong recovery until 2013 or so, with perhaps more deleveraging in the mean time.

Everyone knows about the Great Depression, which was really quite a bit more severe than our present issues. I won’t go into much detail on this. What I will cover is the Panic of 1893 (and briefly some other 19th century “panics”).

Panic of 1893

Another credit crunch-triggered recession was the Panic of 1893. One cause in this case was the overbuilding of railroads on shoddy financial backing. A number of railroad companies went bankrupt, triggering a general banking crisis and a long recession. Another cause was the overpricing of silver by the Federal Government, creating an unsustainable boom in the mining of silver, and a slow drain on federal gold reserves.

Unemployment rose from ~3% in 1892 to ~11% in 1893, and did not dip below 10% until 1899 (these are ROUGH estimates). The overall economy stagnated in the aftermath of this credit crisis until an infusion of new currency occurred with the Klondike Gold Rush. Rough estimates have the economy declining about 5% in the first year after the crisis, making a small recovery, and then making a second decline in 1896 of another 1-2%/year before finally pulling out. Economic production only reached 1892 levels in 1899.

"Panic" sweeping the garbage off of Wall Street

Who knows if this is an apt comparison, given the complexity of a modern economy? So far, however, I don’t see any indication that the US is deviating from the path of earlier financial crises.